Question 1

Which of the following statements about capital markets is true?

Accepted Answer

A) The U.S.capital market is currently larger than all other capital markets combined. 
B) At one time,the U.S.capital market was larger than all other capital markets combined,but that is no longer the case. 
C) There are currently large capital markets in Europe,but none in Asia. 
D) The largest capital markets in the world today are in East Asia and Latin America. 
A) The U.S.capital market is currently larger than all other capital markets combined. 
B) At one time,the U.S.capital market was larger than all other capital markets combined,but that is no longer the case. 
C) There are currently large capital markets in Europe,but none in Asia. 
D) The largest capital markets in the world today are in East Asia and Latin America.

Question 2

Briefly describe how the Bretton Woods system operated.

Accepted Answer

Under the Bretton Woods System of fixed

Question 3

Why do countries peg their currencies,and what problems can result from pegging?

Accepted Answer

Countries peg their currencies to make p

Question 4

Figure 30-12  
-Refer to Figure 30-12.The graph above,depicts supply and demand for U.S.dollars during a trading day.At a fixed exchange rate of 0.30 pounds per dollar,the dollar is ________ versus the pound.A ________ of the dollar would correct the fundamental disequilibrium that exists in this market.

Accepted Answer

A) undervalued;devaluation 
B) undervalued;revaluation 
C) overvalued;revaluation 
D) overvalued;devaluation 
A) undervalued;devaluation 
B) undervalued;revaluation 
C) overvalued;revaluation 
D) overvalued;devaluation

Question 5

What is the difference between a fixed exchange rate system and a managed float exchange rate system?

Accepted Answer

In a fixed exchange rate system,the valu

Question 6

Figure 30-10  
-Refer to Figure 30-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate.

Accepted Answer

A) fundamental disequilibrium;revaluation 
B) fundamental disequilibrium;devaluation 
C) fundamental overvaluation;devaluation 
D) fundamental overvaluation;revaluation 
A) fundamental disequilibrium;revaluation 
B) fundamental disequilibrium;devaluation 
C) fundamental overvaluation;devaluation 
D) fundamental overvaluation;revaluation

Question 7

Article Summary
In an effort to reform its economy,Cuba is likely to eliminate its dual currency system,perhaps as soon as the end of 2015.Presently,Cuba has two official currencies,the peso (CUP)and the convertible peso (CUC).The CUP is the currency used by most businesses and citizens,and the CUC,which will probably be removed from circulation,was designed to be used primarily in the tourism industry and for foreign trade.The CUC is worth 25 times the CUP,with the CUP being pegged to the U.S.dollar on a one-for-one basis since 1959.Until recently,the two currencies were used in separate markets,but there have been signs of both currencies being used at the same locations.Economists have said that eliminating the dual currency system ignores the primary issue at hand,which is the need of a CUP devaluation.Economist Pavel Vidal has stated that "A real monetary reform implies a significant devaluation of the CUP exchange rate.This would change the financial situation of state companies - some of which would fold - improve competitiveness of the sectors operating within the global economy and promote more transparency in financial accounts."
-Refer to the Article Summary.The convertible peso (CUC)is worth 25 times the peso (CUP),yet Cuban officials have for years treated the two currencies as being of equal value.This indicates that the peso (CUP)is ________ compared to the convertible peso (CUC),and would need to be ________ for the two currencies to reach the market equilibrium exchange rate.

Accepted Answer

A) undervalued;revalued 
B) undervalued;devalued 
C) overvalued;revalued 
D) overvalued;devalued 
A) undervalued;revalued 
B) undervalued;devalued 
C) overvalued;revalued 
D) overvalued;devalued

Question 8

Figure 30-1  
-Refer to Figure 30-1.Which of the following would cause the change depicted in the figure above?

Accepted Answer

A) U.S.productivity rises relative to European productivity. 
B) Europeans decrease their preferences for U.S.goods relative to European goods. 
C) The European Union increases its quotas on U.S.-produced wine. 
D) an increase in the price level of U.S.goods relative to European goods 
A) U.S.productivity rises relative to European productivity. 
B) Europeans decrease their preferences for U.S.goods relative to European goods. 
C) The European Union increases its quotas on U.S.-produced wine. 
D) an increase in the price level of U.S.goods relative to European goods

Question 9

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms,which of the following would you expect to see? (India's currency is the rupee. )

Accepted Answer

A) an increase in the value of the rupee relative to the dollar 
B) a decrease in the prices of Indian products 
C) a decrease in the quantity demanded of Indian products relative to American products 
D) an increase in the quantity demanded of Indian products relative to American products 
A) an increase in the value of the rupee relative to the dollar 
B) a decrease in the prices of Indian products 
C) a decrease in the quantity demanded of Indian products relative to American products 
D) an increase in the quantity demanded of Indian products relative to American products

Question 10

If inflation in Russia is higher than it is in the United States

Accepted Answer

A) the purchasing power of the ruble in buying Russian goods will rise relative to the dollar. 
B) the value of the dollar will rise in the long run. 
C) the value of the ruble will rise in the long run. 
D) Both A and C are correct. 
A) the purchasing power of the ruble in buying Russian goods will rise relative to the dollar. 
B) the value of the dollar will rise in the long run. 
C) the value of the ruble will rise in the long run. 
D) Both A and C are correct.

Question 11

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Accepted Answer

A) relative price levels across countries 
B) preferences for domestic and foreign goods 
C) interest rates 
D) relative rates of productivity growth across countries 
A) relative price levels across countries 
B) preferences for domestic and foreign goods 
C) interest rates 
D) relative rates of productivity growth across countries

Question 12

Actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price is known as

Accepted Answer

A) purchasing power parity. 
B) currency arbitrage. 
C) destabilizing speculation. 
D) exchange rate manipulation. 
A) purchasing power parity. 
B) currency arbitrage. 
C) destabilizing speculation. 
D) exchange rate manipulation.

Question 13

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

Accepted Answer

A) The U.S.dollar lost value against the Canadian dollar. 
B) The Canadian dollar lost value against the U.S.dollar. 
C) The Canadian dollar gained value against the U.S.dollar. 
D) Both A and C are true. 
A) The U.S.dollar lost value against the Canadian dollar. 
B) The Canadian dollar lost value against the U.S.dollar. 
C) The Canadian dollar gained value against the U.S.dollar. 
D) Both A and C are true.

Question 14

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Accepted Answer

A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation 
A) devaluation 
B) depreciation 
C) appreciation 
D) revaluation

Question 15

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

Accepted Answer

While a common currency makes it easier

Question 16

If the purchasing power of a dollar is less than the purchasing power of the euro,purchasing power parity would predict that

Accepted Answer

A) in the short run,exchange rates will move to equalize the purchasing power of the dollar and the euro. 
B) in the long run,exchange rates will move to equalize the purchasing power of the dollar and the euro. 
C) in the long run,interest rates will move to equalize the purchasing power of the dollar and the euro. 
D) in the short run,interest rates will move to equalize the purchasing power of the dollar and the euro. 
A) in the short run,exchange rates will move to equalize the purchasing power of the dollar and the euro. 
B) in the long run,exchange rates will move to equalize the purchasing power of the dollar and the euro. 
C) in the long run,interest rates will move to equalize the purchasing power of the dollar and the euro. 
D) in the short run,interest rates will move to equalize the purchasing power of the dollar and the euro.

Question 17

Thailand's experience with pegging the baht to the dollar failed because the baht was ________ relative to the dollar,and China's experience with pegging the yuan to the dollar has run into difficulties because the yuan has been ________ relative to the dollar.

Accepted Answer

A) overvalued;overvalued 
B) undervalued;overvalued 
C) undervalued;undervalued 
D) overvalued;undervalued 
A) overvalued;overvalued 
B) undervalued;overvalued 
C) undervalued;undervalued 
D) overvalued;undervalued

Question 18

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

Accepted Answer

A) sell off investments they had made in Thailand and traded in their baht for dollars. 
B) sell off investments they had made in Thailand and traded in their dollars for baht. 
C) increase their investments in Thailand and exchanged their baht for dollars. 
D) increase their investments in Thailand and exchanged their dollars for baht. 
A) sell off investments they had made in Thailand and traded in their baht for dollars. 
B) sell off investments they had made in Thailand and traded in their dollars for baht. 
C) increase their investments in Thailand and exchanged their baht for dollars. 
D) increase their investments in Thailand and exchanged their dollars for baht.

Question 19

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,what is the dollar cost of a Big Mac in Poland?

Accepted Answer

A) $1.60 
B) $2.00 
C) $3.20 
D) $4.64 
A) $1.60 
B) $2.00 
C) $3.20 
D) $4.64

Question 20

The current exchange rate system has which of the following characteristics?

Accepted Answer

A) The United States allows the dollar to float against other major currencies. 
B) All developing countries allow their currencies to float against the dollar and other major currencies. 
C) The countries of the European Union have adopted the gold standard. 
D) Several developing countries in Asia have adopted the Bretton Woods system. 
E) The current global foreign exchange system is a fixed system. 
A) The United States allows the dollar to float against other major currencies. 
B) All developing countries allow their currencies to float against the dollar and other major currencies. 
C) The countries of the European Union have adopted the gold standard. 
D) Several developing countries in Asia have adopted the Bretton Woods system. 
E) The current global foreign exchange system is a fixed system.

Exam 30: The International Financial System

Which of the following statements about capital markets is true?

Briefly describe how the Bretton Woods system operated.

Why do countries peg their currencies,and what problems can result from pegging?

What is the difference between a fixed exchange rate system and a managed float exchange rate system?

Figure 30-10 -Refer to Figure 30-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of ________ and the IMF would allow a ________ in the exchange rate.

Figure 30-1 -Refer to Figure 30-1.Which of the following would cause the change depicted in the figure above?

If the average productivity of American firms is rising more quickly than the average productivity of Indian firms,which of the following would you expect to see? (India's currency is the rupee. )

If inflation in Russia is higher than it is in the United States

Which of the following is most important in explaining exchange rate fluctuations in the short run?

Actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price is known as

If one U.S.dollar could be exchanged for one Canadian dollar in 1970,and one U.S.dollar can now be exchanged for 1.13 Canadian dollars,which of the following is true?

An increase in a fixed exchange rate from $2.00 per pound to $2.10 per pound is called a(n)________ of the pound.

Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.

If the purchasing power of a dollar is less than the purchasing power of the euro,purchasing power parity would predict that

Thailand's experience with pegging the baht to the dollar failed because the baht was ________ relative to the dollar,and China's experience with pegging the yuan to the dollar has run into difficulties because the yuan has been ________ relative to the dollar.

In Thailand in the late 1990s,there was pressure for the value of the baht to decline as foreign investors began to

A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,what is the dollar cost of a Big Mac in Poland?

The current exchange rate system has which of the following characteristics?

Economics: Foundations and Models

Trade-Offs, comparative Advantage, and the Market System

Where Prices Come From: the Interaction of Demand and Supply

Economic Efficiency, government Price Setting, and Taxes

Externalities, environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms,the Stock Market,and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology,production,and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, taxes, and the Distribution of Income

Gdp: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money,banks,and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

Filters

Figure 30-10 -Refer to Figure 30-10.Under the Bretton Woods System of exchange rates,if the par exchange rate was $2 per pound in the figure above,and equilibrium persisted at $3,then this was evidence of and the IMF would allow a in the exchange rate.

Thailand's experience with pegging the baht to the dollar failed because the baht was relative to the dollar,and China's experience with pegging the yuan to the dollar has run into difficulties because the yuan has been relative to the dollar.